VOLUNTARY TAX COMPLIANCE SCHEME FOR TRADERS INCOME TAX

VOLUNTARY TAX COMPLIANCE SCHEME FOR TRADERS INCOME TAX (FIRST AMENDMENT) ACT 2016

Income Tax (First Amendment) Act 2016 � VOLUNTARY TAX COMPLIANCE SCHEME FOR TRADERS (VTCST) a) a) What triggered VTCST…. Section 236 P Extremely low tax base of traders filing tax Returns

Income declared by traders Tax Year 2014 � Out of 625, 000 traders who filed Returns in TY 2014, the number of traders who declared taxable income was only 61, 527 i. e. Income of more than Rs 0. 4 Million. � 92% of them i. e. 56, 593 traders declared their income in the range of Rs 0. 4 to Rs 1 million in TY 2014. � About 3, 150 traders showed their income in the range of Rs 1 million to Rs 2. 5 million, � About 1, 075 traders declared income in the range of Rs 2. 5 million to Rs 5 million, � About 3, 493 declared income in the range of Rs 5 million to Rs 10 million and � 315 traders declared their income up to Rs 50 million. � only 51 traders in the country declared their income above Rs 50 million.

Past Amnesty Schemes 1958 1969 1976 1997 71, 289 Declaration 19, 600 Declaration No data Rs 141 million tax collected Constitution Petition 2251 of 1997 dated 08 -11 -1997 Rawalpindi Bench admitted but not decided. TAS 2000 79, 411 (88000) Declaration -----Martial was in place -overseas assets could be declared ITS 2008 : Tax collected Rs 2. 8 billion Rate of tax was 2% April 2012: amnesty for funds invested in Stock Exchange 2013 Amnesty scheme for non duty paid cars: about 50, 000 NCP cars took advantage 2013 Amnesty for Traders (investment in green field industries etc) now this scheme of 2016

VTCST "99 A. Special provisions relating to traders. - (1) Subject to sub-section (3), tax payable on the profits and gains of a trader as defined in sub-section (4), who upto thirty first day of December, 2015, has not filed a return during any of the ten preceding tax years shall be computed in accordance with the rules laid down in Part I of the Ninth Schedule. (2) ) Subject to sub-section (3), tax payable on the profits and gains of any trader as defined in subsection (4), who (i) is a filer; or (ii) is NTN holder and a non-filer but has filed return or returns in any of the last ten preceding tax years; shall be computed in accordance with the rules laid down in Part II of the Ninth Schedule. (3) Sub-section (1) and (2) shall apply, if: (i) the return filed by the trader qualifies for acceptance in accordance with the rules laid down in the Ninth Schedule; (ii) return relates to tax years 2015 to 2018; and (iii) "Income from Business" consists of profits and gains from trading activity only. (4) For the purpose of this section and the Ninth Schedule, 'trader' means an individual or an AOP buying goods or merchandise and selling the same without further processing and providing business related after sales services by doing repair jobs. Explanation: - For the removal of doubt any person engaged in (i) rendering of or providing of services as defined in clause (ii) of sub section (7) of section 153; or (ii) retailer falling under rule (5) of Chapter II Of Sales Tax Special Procedures Rules, 2007, shall not be treated as a trader. "

The scheme applies to 'Trader', which for the purposes of this scheme means: a) An individual or an Association of Persons; b) Engaged in the business of buying goods or merchandise and selling the same without further processing and providing, business-related after sales services, by doing repair jobs.

Exclusions from above definition of 'Trader': It has been specifically provided in the scheme that an individual or an association of persons shall not qualify as a 'Trader' to avail this scheme, if it is engaged in: a) Rendering of, or providing of services; and b) Retailers: Operating as a unit of a “national or international chain of stores”; Operating in an air-conditioned shopping mall, plaza or center, excluding kiosks; Who have a credit or debit card machine; Whose cumulative electricity bill during the immediately preceding twelve consecutive months exceeds rupees six hundred thousand; and Wholesaler-cum-retailer, engaged in bulk import and supply of consumer goods on wholesale basis to the retailers as well as on retail basis to the general body of the consumers. [Rule 5 of Chapter 11 of Sales Tax Special Procedure Rules 2007]

Exclusion from the scheme: a. Traders deriving income from following sources: Income chargeable under the head "Salary"; Income chargeable under the head "Income from business" other than trading activities; Income chargeable under the head "Capital Gains"; and Income chargeable under the head "Income from Other Sources" other than profit on debt and dividend. b. Members of Senate of Pakistan, National Assembly of Pakistan, Provincial Assemblies and persons convicted under Control of Narcotics Substances Act, 1997 (XXV of 1997), Anti -Terrorism Act, 1997 (XXVII of 1997) and Anti-Money Laundering Act, 2010 (VII of 2010).

For the purposes quantification of tax liability under this scheme the 'Traders', have been divided into two categories: Category – I (Part I) ◦ Traders who have not filed a return of income for any of the preceding ten (10) years upto December 31, 2015, i. e. for the Tax Years 2005 to 2014; Category – II (Part II) ◦ Trader who is a filer; and ◦ Trader who is NTN holder and a non-filer but has filed return or returns in any of the last ten preceding tax years

Taxability A Trader shall have the option: to be assessed either under Ninth Schedule ( VTCST); or to be assessed in normal manner where all provisions of the Income Tax Ordinance 2001 other than Ninth Schedule is applied.

Tax years covered under the scheme are Tax Year(s) 2015, 2016, 2017 and 2018 as a consolidated package. In case of non-compliance in any of the subsequent tax years (upto Tax Year 2018) the benefits of the scheme availed in any of the preceding tax years shall stand forfeited.

Computation of tax liability on income from trading activities of business: Category - I Tax Year Tax Liability * Conditions 2015 1% of the 'Working Capital' should not exceed Rs. 50, 000. If working capital exceeds Rs. 50 Million the person will be taxed in the normal manner 2016 Based on 'Turnover' as per rates 'Turnover' shall not be less 3 times of the given below 'Working Capital' declared for the tax year 2015 2017 Based on 'Turnover' as per rates 25% increase in tax liability as compared to given below tax year 2016 2018 Based on 'Turnover' as per rates 25% increase in tax liability as compared to given below tax year 2017 * No credit for tax collected or deducted at source under various provisions of the Income Tax Ordinance, 2001 shall be admissible, except from profit on debt, dividend and income from property under section 150, 151 and 155 of the Income Tax Ordinance, 2001, respectively. * Similarly, no refund adjustment shall be admissible against this tax liability. Working capital means the difference between the current assets and current liabilities of the trader's business

Rates of tax: Tax Year 2016 -2018 Turnover Rate of tax Turnover upto Rs. 50 million 0. 2% Turnover exceeds Rs. 50 million but does not exceeds Rs. 250 million 100, 000 rupees plus 0. 15% of the amount exceeding 50 million rupees Turnover exceeds Rs. 250 million 400, 000 rupees plus 0. 1% of the amount exceeding 250 million rupees

Category – II Where return of income for the Tax Year 2015 has not yet been filed: Tax Year 2015 Tax Liability Based on taxable income and applicable tax rates; Or Based on 'Turnover' as per rates given above Conditions Tax payable should be higher of: n 25% increase in tax payable as compared to tax year 2014 or any latest tax year for which a return has already been filed; or n. Tax calculated on the basis of turnover as per rates given above; or n. Rs. 30, 000 2016 ----do---- Tax payable should be higher of: n 25% increase in tax payable as compared to tax year 2015; or n. Tax calculated on the basis of turnover as per rates given above. 2017 ----do---- Tax payable should be higher of: n 25% increase in tax payable as compared to tax year 2016; or n. Tax calculated on the basis of turnover as per rates given above. 2018 ----do---- Tax payable should be higher of: n 25% increase in tax payable as compared to tax year 2017; or n. Tax calculated on the basis of turnover as per rates given above.

Where return of income for the Tax Year 2015 has already been filed: Return of income for the tax year 2015 can be revised, without seeking prior permission from the Commissioner, subject to payment of tax as under: Tax Year 2015 2016 Tax Liability Based on taxable income and applicable tax rates; OR Based on 'Turnover' as per rates given above Conditions Tax payable should be higher of: n 10% increase in tax payable as compared to tax already paid for tax year 2015; or n. Tax calculated on the basis of turnover as per rates given above. Tax payable should be higher of: n 25% increase in tax payable as compared to tax year 2015; or n. Tax calculated on the basis of turnover as per rates given above. 2017 ----do---- Tax payable should be higher of: n 25% increase in tax payable as compared to tax year 2016; or n. Tax calculated on the basis of turnover as per rates given above. 2018 ----do---- Tax payable should be higher of: n 25% increase in tax payable as compared to tax year 2017; or n. Tax calculated on the basis of turnover as per rates given above.

Credit of income for the purposes of explaining sources of acquisition of assets (under section 111 of the Income Tax Ordinance, 2001): Category - Income worked back (Imputable income) on the basis of tax paid. Category -II- Taxable income declared or income worked back (Imputable income) on the basis of tax paid, which ever is higher. This scheme should not be considered as an Amnesty Scheme for assets acquired from untaxed amounts.

Benefits of availing this scheme: a. Immunity from selection for audit of tax affairs for the tax years 2015, 2016, 2017 and 2018 under section 177 and 214 C of the Income Tax Ordinance, 2001. b. Exemption from deduction of tax source as payer under section 153 of the Income Tax Ordinance, 2001. c. Substantially reduced rate of turnover tax ranging from approximately 0. 10% to 0. 20% as against standard rate of 1%. Specified in section 113. d. Exemption from furnishing of Wealth Statement (statement of assets and liabilities) if the declared taxable income or imputable income does not exceed Rs. 1, 000. Tax Year 2015 only. e. Traders in 'Category - I' have to file a simple one page return prescribed under the 9 th Schedule. (those falling in Category II will file normal return)

Some examples* Tax Year 2015 Description Rs. Current assets 120, 000 Less: Current Liabilities (70, 000) Working Capital Tax Payable - 2015 (50 million x 1%) * Source: NZAJ&Co 50, 000 500, 000

Tax Year 2016 Description Reference Rs. Working Capital Declared in 2015 A 50, 000 Turnover Declared in 2016 B 120, 000 Minimum Turnover for 2016 C = (3 x. A) 150, 000 Turnover D = Higher of A or C 150, 000 Tax Payable for 2016 as per rates table in Annexure A Rs. 100, 000 plus 0. 15% of (150, 000, 000) 250, 000

Tax Year 2017 Description Reference Rs. Tax Paid in 2015 A 250, 000 Turnover Declared in 2017 B 120, 000 Minimum Tax to be paid C = (125% x A) Turnover based on 125% of tax paid in 2015 using Annexure A The turnover will fall in second slab - (312, 500100, 000)/0. 15%+50, 000 Tax payable based on declared turnover D = Rs. 100, 000 plus 0. 15% of (120, 00050, 000) Tax Payable for Tax Year 2017 Higher of C or D 312, 500 191, 666, 667 205, 000 312, 500

Tax Year 2018 Description Reference Rs. Tax Paid in 2015 A 250, 000 Turnover Declared in 2018 B 120, 000 Minimum Tax to be paid C = (125% x A) Turnover based on 125% of tax paid in 2015 using Annexure A The turnover will fall in second slab - (312, 500100, 000)/0. 15%+50, 000 Tax payable based on declared turnover D = Rs. 100, 000 plus 0. 15% of (210, 00050, 000) Tax Payable for Tax Year 2018 Higher of C or D 312, 500 191, 666, 667 340, 000

For Traders Falling Under Part II ii. For Tax Year 2015 Tax shall be payable at higher of following: a) 25% more than tax paid for tax year 2014 or for latest tax year for which return has been filed on the basis of taxable income; b) Turnover based tax at rates specified in Annexure A; or c) Rs. 30, 000 Following will illustrate the situation: Description Tax Paid in 2014 Reference A Turnover Declared in 2015 Rs. 25, 000 17, 500, 000 Tax at rates in Table in Annexure A B = 17, 500, 000 x 0. 2% Tax Payable for Tax Year 2015 Higher of A, B or Rs. 30, 000 35, 000

ii. For Tax Year 2016 to 2018 Tax shall be payable at higher of following: a) 25% more than tax paid for tax year 2015 on the basis of taxable income; or b) Turnover based tax at rates specified in Annexure A to the scheme Tax Year 2016 Description Tax Paid in 2015 Reference A Turnover Declared in 2016 Rs. 35, 000 20, 000 Tax at rates in Table B = 20, 000 x 0. 2% Tax Payable for Tax Year 2016 Higher of A or B 40, 000

Tax Year 2017 Description Tax Paid in 2015 Reference A Turnover Declared in 2017 Rs. 35, 000 15, 000 Tax at rates in Table B = 15, 000 x 0. 2% Tax Payable for Tax Year 2017 Higher of A or B 30, 000 35, 000 Tax Year 2018 Description Tax Paid in 2015 Reference A Turnover Declared in 2018 Rs. 35, 000 22, 000 Tax at rates in Table B = 22, 000 x 0. 2% Tax Payable for Tax Year 2018 Higher of A or B 44, 000

Trader who has already filed return for tax year 2015 before due date may file a revised return provided that the tax payable is atleast 10% higher than the tax paid as per original return. Approval of Commissioner for such revision shall not be required.

Some other Conditions: 1. Where it is subsequently discovered by the Commissioner that the trader was not eligible to be qualified under this Schedule or became ineligible to be qualified under this Schedule during any time between tax years 2015 to 2018 due to non-payment of tax or filing of return or otherwise, the trader shall be treated to have exercised the option to be assessed under the provisions of this Ordinance, other than this Schedule and all the provisions of the Ordinance shall apply accordingly. 2. A trader qualifying under this Schedule shall not be a prescribed person for the purpose of section 153 of the Ordinance. 3. The provisions of sub-section (2) of section 116 shall not apply for the tax year 2015 to the trader qualifying under this Schedule if the declared income for the year is less than one million rupees. 4. Notwithstanding anything contained in aforesaid rules, a return qualifying under this Schedule may be subject to amendment under section 122 where definite information, as defined in sub-section (8) of section 122, comes into the knowledge or possession of the Commissioner in which case all the provisions of the Ordinance shall apply accordingly. 5. In this Schedule, (a) (b) ‘due date’ means the date as specified by the Federal Government for tax year 2015 and for the tax years 2016, 2017 and 2018 the date specified in clause (b) of sub-section (2) of section 118. ‘turnover’ means turnover as defined in clause (a) of sub-section (3) of section 113 of the Ordinance.

Form A RETURN FOR TRADER QUALIFYING UNDER PART I OF THE SCHEDULE FOR THE TAX YEARS 2015 TO 2018 Name of proprietor/Managing Member of AOP_________________ CNIC: (please attach copy of CNIC)_____________________ Business (es) Name &Address(es) _________________________________________________________ Phone: _______Email: _____________Mobile: ________ Residential Address of the proprietor: ________________________________________________________ Name(s) and Residential address(es) of Members of AOP (if applicable) _______________________________________________________________________ _______________________________________________________________________ (1) Amount of working capital ______________________ (2) Tax payable on (1) above (for tax year 2015 only)_____________ (3) Total Turnover ___________________________ (4) Tax payable on (3) above (for tax years 2016 2017 and 2018 only)______ (5) Income from Property/Profit on Debt/Dividend, if any, ___________ (6) Tax payable on (5) above less already withheld______________ (7) Amount of Tax [(2) or (4)] plus (6) __________________ (8) CPR No: __________________ Dated: ________ Declaration: I___________ CNIC No. _________ in my capacity as self /representative of taxpayer named above, do hereby solemnly declare that to the best of my knowledge and belief the information given in simplified return is correct and complete in accordance with the provisions of Part I of the Ninth Schedule to Income Tax Ordinance, 2001 Signature : ____________ Date : ______________”

THANK YOU Abid H. Shaban Advocate